Pension fund members must be better educated, says new PFA
Johannesburg - After more than six years of wading through 15 volumes of documents, pondering the actual complaints against the relief sought and going back and forth between the various respondents, the Office of the Pension Funds Adjudicator has finally closed a marathon matter.
However, the litany of complaints EGT Venn of Florida Hills, Johannesburg, brought against Nedgroup Pension Fund (first respondent); Nedgroup Defined Contribution Provident Fund (second respondent); Old Mutual Life Assurance Company (SA) Ltd (third respondent) and KPMG Inc (fourth respondent), and the long-drawn-out resolution of the matter has a lesson for those associated with pension funds.
Muvhango Lukhaimane, the newly-appointed deputy Pension Funds Adjudicator said the considerable amount of time expended by the OPFA on the resolution of Venn’s complaints pointed towards the need for pension funds, administrators and employers to better educate pension fund members about their benefits.
She said this would help dissatisfied members to lodge coherent complaints, inclusive of actual relief sought.
Between 27 October 2005 and 11 November 2011, Venn lodged 15 volumes of documents with the OPFA containing various complaints about the administration of a defined contribution provident fund.
The complainant became a member of the first respondent during December 1963. He transferred to the second respondent through an application to the Registrar of Pension Funds, which was approved sometime during the period April to July 1998, with effect from 1 March 1998. He went on early retirement with effect from 1 September 2004.
Among the various complaints lodged with the OPFA, Venn submitted that he was not credited with the proceeds of the third respondent’s demutualisation shares in 1998, commented about a fund name change, commented about smoothed bonuses, undisclosed commissions possibly charged, the possible so-called bulking practice by a former administrator, the first respondent’s financial statements, undisclosed costs, penalties and the method of calculation of a restitution claim due to smoothed bonuses.
The third respondent, in a letter dated 12 April 2005, submitted the basis of the complainant’s calculation of financial loss was not clear. The rationale for his claim for financial relief appeared to stem from his belief that he had been prejudiced through the move from the Guaranteed Fund to the Genesis portfolio.
This, the third respondent submitted, was based on a misunderstanding of the products. It was further stated that the products provided by the third respondent to the complainant were in line with decisions made by the second respondent’s trustees and the products themselves declared bonuses and were managed in line with their contractual obligations.
In her determination, Ms Lukhaimane dealt with the complaints individually:
First complaint: The complainant alleged there had been misrepresentation to members of the first respondent agreeing to transfer to the second respondent
The complaint in the summary of complaints dated 11 November 2011 was not listed as one of the numbered complaints in the submission of 15 May 2006. It was, therefore, not listed after the conciliation of 25 June 2010 as one of the issues still outstanding. No relief was sought and the complaint was dismissed.
Second complaint: The complainant disputed the validity of transfer values provided to members. He claimed at least R281 341 plus interest as determined by the Adjudicator from 1 September 2004 to date of payment based on difference between 27% sweetener and 50%, being the share of the excess of funding requirements.
The complainant was assumed to be claiming damages based on an incorrect amount transferred from the first respondent to the second respondent with effect from 1 March 1998.
Ms Lukhaimane said any scheme for the proposed transfer of members from one pension fund to another only became effective after approval by the Registrar of Pension Funds in terms of section 14(1)(e). Before approving a transfer, the Registrar had to be satisfied that the scheme was reasonable and equitable.
Any person aggrieved by a decision of the Registrar may appeal that decision in terms of section 26 of the Financial Services Board Act, 97 of 1990. However, the complaint was time barred. Further, the OPFA was not empowered to review any decisions of the Registrar.
Third Complaint: The complainant claimed a minimum of R287 176.12 plus interest as determined by the Adjudicator from 1 September 2004 to date of payment in respect of damages based on the application of smoothed bonuses to the investment of his choice in the second respondent.
In dismissing the complaint, Ms Lukhaimane said there was nothing to show that the trustees of the second respondent had failed in their legal duty to act with due care and diligence. As no wrongful act had been shown, it could not be said that the second respondent was the direct cause of any damage to the complainant.
Fourth complaint: Transfer to new fund soon after the initial transfer to the Guaranteed Fund
The relief sought by the complainant consisted merely of a statement that the Genesis Fund performed worse than the Guaranteed Fund in the period during which the complainant was a member. No relief was sought and the complaint was dismissed.
Fifth complaint: The complainant sought payment of R16 271.24, being the difference between his actual retirement benefit from Old Mutual Genesis and his benefit had he remained in the Old Mutual Guaranteed Fund until his retirement date of 31 August 2004.
Ms Lukhaimane said it was not clear on what basis the complainant sought to hold the third respondent liable for an investment decision which he made. The complaint was dismissed.
Sixth complaint: The complainant alleged “churning” of policies and claimed R103 699, 99 as possible commission paid to various parties.
Ms Lukhaimane said the so-called “churning” of insurance policies was an illegal practice. No proof had been submitted of any unnecessary buying and selling of insurance policies or switching of investments. The complaint was dismissed.
Seventh Complaint: The complainant objected to a change of the fund’s name.
On closer reading of some of the submissions, it would appear that the complaint related to the change of names of certain investment portfolios offered by the third respondent to members of the second respondent, rather than to a change of name of the first or second respondent. No specific relief was sought and the complaint was dismissed.
Eighth Complaint: Non-disclosure of “penalties” to switch funds.
When a member decided to change or switch from one investment portfolio to another, the administrative cost must be borne by the member rather than by the general body of members. There was nothing untoward about such a switching cost as long as it was properly disclosed and was reasonable.
Ninth Complaint: The complainant claimed payment of R204 806.00 plus interest from 12th July 1999 (date of listing) to date of payment as his share of the proceeds of so-called demutualisation shares issued to policy holders when the third respondent demutualised and became a listed company.
Ms Lukhaimane said the complainant had not submitted proof that he was a policy holder of the third respondent. The second respondent was such a policy holder, in which case the shares would have been issued to the second respondent and would form part of the second respondent’s assets. It was then up to the trustees to decide who would and who would not qualify for an additional windfall.
Tenth Complaint: The complainant alleged “premium bulking” and claimed payment of R1 710.91 plus interest from 1 July 2007 to date of payment, based on the unsubstantiated possibility that there may have been a deliberate delay in crediting monthly contributions in order to generate unlawful profits for the administrator.
Since nothing in the submissions indicated that unlawful “bulking” actually took place, the complaint was dismissed.
Eleventh Complaint: The complainant claimed R32 308.99 plus interest from September 2004 to date of payment as a restitution amount claimed in respect of his undeclared administration fee and a further R100 185.00 plus interest from September 2004 as a restitution claim for undisclosed costs calculated proportionally as a percentage of his share of the insurance policy costs.
Ms Lukhaimane said in her determination that administration fees have to be paid for the work done in administering a pension fund such as the second respondent. The complaint was thus dismissed.
Summarising the case, Ms Lukhaimane said the complaints were based on a misunderstanding not only of the investment products, but also about the general administration of pension funds.
“No proof has been furnished that the complainant has suffered any financial loss;
“The considerable amount of time expended by this Tribunal on the resolution of this complaint illustrates the need for pension funds, administrators and employers to educate pension fund members, not only on their benefits, but also on the nature of pension funds, the administration thereof and investment of funds.
“This will in turn assist members, where dissatisfied with aspects of their pension funds, to lodge coherent complaints, inclusive of actual relief sought from this Tribunal,” she said.
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